Swatch Group

The 2016 half year results of the Swatch Group did not go unnoticed. An overview can he found on the Swatch Group corporate website. On Bloomberg and Reuter’s Business Insider, these sources talk (big) numbers and give a technical run-down on the topic. They don’t talk watches of course, or talk about why people are not buying watches. It is about numbers.

The Rest of the Watch Industry

It is not a Swatch Group ‘problem’ (<- they are still making a profit, keep that in mind!), almost all watch manufacturers are suffering from slow sales. We felt the somewhat sad outlook during SIHH and BaselWorld. Heck, some brands just told us they feel the pain (just a few moments before showing a collection where no watch was under €50K Euro).

The good thing I read about Swatch Group is that Hayek refuses to cut down on jobs and costs. Investors might argue, but come on, you need good people to create new innovative products, and market them. We have seen other brands and groups in the watch industry taking different decisions on this front.

No, almost all watch brands are under pressure, for sure. The decrease of tourism for whatever reasons (terrorist attacks might be one of them), awful currency conversion rates, an anti-corruption campaign in China, and so on. It also shows that these markets, currently hit, were responsible for the peaks during the previous, better years.

Back to Reality

I am not a finance analyst, but let’s talk watches and the market for a brief moment. How many of you, with a normal to good income, are taking precautions based on what has happened to us (crisis, attacks, difficult housing market, cut in jobs everywhere) in the past few years? You might have put a bit more money into savings than normal. Instead of buying your x-th watch, perhaps you kept your money in your pockets. You didn’t really need that GMT-Master II Blue & Black as the year before you already got the normal GMT-Master II LN, right?

Was it normal?

Let me put this differently. Before the financial crisis began, let’s say around 2008, a lot of things were taken for being granted.

A new car, no problem. 4x per year on a holiday with the family, sure. Bonus? New watch. Remember that there was a time that someone just bought one good watch for a lifetime. One watch. In the late 1990s, 2000s, it became quite common to have a couple of watches. Different watches for your mood, for your outfits, for whatever it was that you were doing that needed another watch. Then came the social disruption. Sudden changes in people’s surroundings, like the economic crisis, made them realize that this type of spending on luxury needed to change.

We lived in luxury for a long time, almost free of worries. Tourism was booming, China was booming, Russians were spending, everyone needed a watch!

Bimmers, Benzes and Bentleys

If you, as a brand, or investor in these brands or groups thought those were normal times, think again! That was not a normal time. Besides the excess sales in Asia, or in Europe due to tourism, people were already going back to reality. Reality kicked in for many of us who realized that it might be wise to save up and see luxury really as luxury and not as a given daily form of entertainment. It might appear so on social media channels like Instagram, Twitter and Facebook, perhaps even on our blog, that it is normal to fly helicopters, planes or drive in half-a-million cars flashing your [borrowed] watch. It is mostly all for show.

People are now more into reality and, surely, they are willing to spend their money on something unnecessary as a watch, or fountain pen, or fashionable stuff. Now, though, they just put more thought into it. They realized they do not need all sorts of material ballast.

Wrong Reference

It makes me wonder whether brands see the pre-crisis times as a reference or just as a few years of sheer luck that it all went so well for a relatively long time. I am afraid a lot of brands, their CEOs and their investors might think that the intercity train they drove on was never going to stop. Ask the guy in the street, with that average or nothing-to-complain-about net income, your customer in most cases, he could have told you so quite a while ago.

Do they really know?

This results to the question, does the watch industry really know who you – the customer – are? The (luxury) watch industry is still very traditional, they decide what’s good for you. Does this still work today? Don’t they need to know who you are, what your concerns are when buying a watch and what you really think is important when buying a watch? I have had this discussion with some watch brands, and the one remark that surprised me the most was “I work in the watch industry for 20 years, I know what customers want.”. Let me tell you, if that was the case, they would not have introduced certain watch models and would be doing better than they are doing now.

Keep your customers

So no, it is not getting bad or the (Swiss) watch industry is not in crisis, as is being suggested by some analysts who seem to only look at the numbers of the wonder years. As long as watch brands keep their prices sane, realize that the “luxury-margin” in their pricing might have been a bit fat in the last couple of years, it might be alright in the end. Annual increases were outrageous in the last couple of years as no-one with a decent normal job had annual increases like that on his salary since 2008.

Make sure your target audience is still able to buy your watches, whether that is in the < €2000 Euro category or the +€10.000 Euro category. In the end, it is about money that can be spent on luxury goods and money that people also easily can spent on something more useful.

Agree or disagree? Share your thoughts and opinions with us, below in the comments field.

Robert-Jan Broer, born in 1977, watch collector and author on watches for over a decade. Founder of Fratello Watches in 2004.

Philterr

Nice article, I agree, the auto industry is seeing similar effects particularly in the luxury and exotic segments, where they are looking to 2007 as what they expect to be normal, when in fact its far from that due to the excess discretionary income that is no longer around.

Judah Rosenthal

I started to notice this more recently in the secondary market. Rolex are sitting on the TZ shelf a lot longer and there’s no expectation that they’ll move within a day.

But companies like Omega continue to push the zero discount boutique model while they back door inventory to grey. That undermines everyone.

I think a general price freeze or figuring out how to lower prices overall (a la Lange’s newest) is the better approach.

It may reduce their margin but I think it could increase sales from the casual buyer (in the sub $10k zone). Those of us with 10+ watches aren’t where the sub premium market should be focusing its attention. The guy with the iPhone is.

Skip

Does Omega backdoor to the grey market? I always assumed all those watches came from authorized dealers who simply could not move them at list price. It is true that with all the deals on grey market Omegas it is hard to believe how the AD’s can sell anything (save for discounted watches to the grey market).

This is a different topic, and almost all brands ‘suffer’ from this. We have no information that Omega pushes their own pieces into the grey market, on the contrary. Retailers are mostly pushing their watches into the grey market, in order to get their turnover. Brands do not buy back stock, so they have to move and earn. If that means that have to sell a couple of quick sellers in order to also sell some of the slow movers to the grey market dealers, so be it. With the decrease of retailers and increase of official boutiques, Omega tries to fight grey market. However, as said, not only Omega suffers from grey market. All brands do.

Head Tart

I’ve been noticing for a few years that the retail prices just seem to be going up , up , up yet production is also increasing , which should imply some savings in economy of scale , but no . The value equation , which 10 years ago seemed to be a tad questionable , has now lost all relationship to reality and as the prices go up , the number of potential customers becomes smaller , as , as has already been pointed out , real wage growth has tended to be somewhat stagnant in recent years . Add to the mix the extortionate prices charged for servicing and the refusal to supply spares to independent watchmakers , the growth of zero discount Boutiques and the endless ‘ limited editions ‘ which have to a large degree made a mockery of the concept , and the end result is buyer fatigue . Can anyone really justify $80,000 for a manual wind chrono that can’t even tell you the date ? Or a steel chronograph that costs as much as a mid range BMW ? Many of these ultra complicated watches seem to be more examples of horological oneupmanship rather than devices that can actually be used to tell the time , in fact , the new trend seems to be who can build the ugliest , most expensive monstrosity that will probably lose 50% of its value when you walk out the door . Smaller brands that don’t spend the money on hype , advertising , ambassadors and sponsoring million dollar sporting events , and therefor are able to offer something approaching value for money , seems to be the direction that many buyers are heading in , either that or quality , reasonably priced , vintage acquisitions .

Jeff Smith

I am a watchoholic..I lovingly maintain a 62 watch collection that includes…Military, dress/luxury, chrono’s, manual, automatic and quartz watches…I cannot explain why, other than the fact that ever since I was 12 years old, I have passionately admired timepieces. In my impassioned mind the reason for my addiction is the fascination for detail and intricate design. Vintage watches make all my collecting senses tingle. The art of finding a unique piece has made me obsessive in my approach to collecting..not cost and investment potential. Today’s market is stuck in a time warp that is being speculated and driven by luxury and image…For collectors, like myself, it seems a little excessive. Swiss made watches were and still are, the gold standard..but, the industry is starting to realize that collectors are becoming jaded by high price and generic mechanism’s. The Asian market is moving towards a more customized approach that reaches back to heritage and value. Copies or as some collectors call them, fakes, are becoming the norm..for most watch purchasers this fulfills the bling factor and the look/feel of a luxury piece. New technology from the East will provide new buyers with a high value, customized product that presses these buttons…But, for serious collectors the feel, provenance and karma is still vintage. So, the vintage market is red hot and prices are being driven higher accordingly. The 50’s, 60’s and 70’s vintage timepieces are driving this market and the current crop of new producers are reproducing these styles in earnest. So in closing..where does it leave passion in this equation..I guess this is the bottom line for all serious collectors? Take care and foster your passion for fine and interesting timepieces..time is ticking away!

watchesandart.com

RJ, you have covered a lot of facts, but I want to bring one more thought to the table. Have the CEOs of Swiss watchmaking firms thought about the size of the vintage market and that the current price boom in vintage watches (at least for certain models of Rolex, Heuer, Omega) could attribute to people spending money on vintage instead on new watches? Money out there is limited. Not unlimited. I have thought about the size of the used and vintage Rolex market alone, and my personal estimate is that there are about 30 million Rolex watches more or less in the market or sitting in collections to be sold some day. Imagine the dollar value of 30 million Rolexes??? Overall, the Swiss luxury watchmarket is small, and I find it very funny to read on Forbes and other magazines that the sales of Apple watches are higher than the one of luxury Swiss watches. That is like comparing bicycles sales to the sales of Mercedes and BMWs. It has nothing to do with the slump in sales of Swiss watches.

Another aspect is the internet. Grey market dealers are offering unworn watches for significant discounts, and that makes the consumer think twice? Why is a non-authorized dealer offering the watch with 30% off? And why can’t the consumer walk into the store of an authorized jeweler and get at least 5% off? Or 10%? I have friends who are authorized jewelers, and they make a lot of funny experiences with clients entering their stores. Clients walking in with a printout from Chrono24 showing an IWC for sale in Kazakhstan offered at 40% off and then asking the jeweler if he can match that price? My answer would be, just wire the money to Kazakhstan and wait for the watch…LOL

Skip

I think you are forgetting about the Chinese market, which has driven so much growth. Even watch sales in New York, London, Paris, Honolulu, …, are often to Chinese buyers. In New York I have seen authorized dealers overwhelmed with Chinese buyers. I am not joking. A few years ago I easily saw a dozen Chinese people buying solid gold Rolexes, JLC’s and similar all at the same time. I have never seen anything like it. Perhaps the world never will again.

Those people are not coming around so much any more. When oil comes back the Russians and Arabs will buy again, but the Chinese market may simply grow more slowly (like the Japanese market did). The big name brands cannot count on double-digit sales growth among $30k + watches.

Also, many gray market dealers are in the US. I have a buddy in the UK who orders watches online and has them shipped to my home every time he visits. The VAT he saves covers the cost of the trip.

We mentioned China a couple of times, including those who are tourists ” The decrease of tourism for whatever reasons (terrorist attacks might be one of them), awful currency conversion rates, an anti-corruption campaign in China, and so on. It also shows that these markets, currently hit, were responsible for the peaks during the previous, better years.”.